Environmental Sustainability and Implied Cost of Equity: International Evidence

In this paper, we examine the relationship between the environmental practices and implied cost of equity. Using a comprehensive sample of 23,301 firm-year observations from 43 countries, we find that an improvement in environmental practices leads to reduction of the implied cost of equity. Further, the results are stronger in countries where country-level governance is weak. Our results indicate that most of the benefits come from the reduction of emission and unnecessary wastage of resources. Our results remain robust to alternative specifications and endogeneity concerns.